Defazio v Wallis

[*1] Defazio v Wallis 2009 NY Slip Op 52676(U) [26 Misc 3d 1206(A)] Decided on December 7, 2009 Supreme Court, Nassau County Driscoll, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 7, 2009
Supreme Court, Nassau County

Victor J. Defazio, Jack Finkelstein, James Collins and Henry Gebhard, individually and derivatively, on behalf of Meridian Group Holdings, LLC; Meridian Ambulance Group, LLC; Meridian Ambulance Holdings, LLC; Meridian Behavioral Sciences, LLP; Medtransit; Meridian Behavioral Health Sciences, LLP; Meridian MSO, Inc.; Meridian MSO, LLC; University Care Network, LLC, Plaintiffs,

against

Kevin Wallis; Ryan P. Greenberg; Thomas Ryan; Robert J. Aquino; Capital Health Management, Inc.; Meridian Group Holdings, LLC; Meridian Ambulance Group, LLC; Meridian Ambulance Holdings, LLC; Meridian Behavioral Sciences, LLP; Medtransit LLC; Meridian Behavioral Health Sciences, LLP; Meridian MSO, Inc.; Meridian MSO, LLC; University Care Network, LLC, Defendants.



008715-08



Plaintiffs' counsel: Joel Spivak, Esq.

Defendants' counsel: Edward Weissman, Esq.

Timothy S. Driscoll, J.

This matter is before the Court for decision on a) the motion filed by Plaintiffs on

August 25, 2009 (Motion Sequence No. 2), and b) the cross motion filed by Defendants (Motion Sequence # 3) on September 2, 2009, which were submitted on October 13, 2009. For the [*2]reasons set forth below, the Court 1) grants Plaintiffs leave to reargue or renew the portion of the Court's July 8, 2009 decision ("Prior Decision") granting Defendants' motion to dismiss certain claims based on acts committed before May 12, 2002 and, upon reargument, denies Plaintiffs' motion; and 2) grants Defendants Wallis and Greenberg leave to reargue or renew that portion of the Prior Decision that denied Defendants' motion to dismiss the Plaintiffs' second cause of action for breach of fiduciary duty and, upon reargument, grants the Defendants' motion to dismiss the second cause of action as to breaches of fiduciary duty which occurred on or before May 12, 2002 and otherwise denies Defendants' motion.

BACKGROUND

A. Relief Sought

In the Court's July 8, 2009 decision ("Prior Decision"), the Court 1) granted Defendants' motion to dismiss Plaintiffs' waste and conversion claims in the first and fourth counts of the Complaint as to acts committed on or before May 12, 2002, and otherwise denied Defendants' motion to dismiss those claims; 2) granted Defendants' motion to dismiss the third cause of action; and 3) denied Defendants' motion to dismiss the second and fifth causes of action. The instant motions involve the parties' applications that the Court reconsider certain aspects of the Prior Decision.

Plaintiffs move for leave to reargue and/or renew that portion of the Prior Decision in which the Court, concluding that Plaintiffs were not entitled to the benefit of the six month extension of the statute of limitations provided in CPLR § 205, dismissed certain claims as to acts committed before May 12, 2002. Plaintiffs submit that the Court a) overlooked and/or misapprehended critical facts and/or law; and b) did not have certain facts before it that should prompt the Court to reconsider its Prior Decision.

Defendants Wallis and Greenberg oppose Plaintiffs' motion, and cross move for an Order granting reargument as to that portion of the Prior Decision that denied Defendants' motion to dismiss the Plaintiffs' second cause of action for breach of fiduciary duty and, upon reargument, dismissing the second cause of action for breach of fiduciary duty as time-barred under CPLR§ 214(6), the applicable three year statute of limitations for breach of fiduciary duty claims seeking money damages.

B. The Parties' History

The parties' history is set forth in the Prior Decision, and the Court incorporates that history herein by reference.

Only the first, second, and fourth causes of action are germane to the present motions. In the first cause of action, Plaintiffs allege that Defendants Wallis, Greenberg, Ryan, and Aquino wasted the assets of Defendant Meridian Group Holdings, LLC by transferring the assets to Defendant Capital Health Management, Inc., a corporation owned by Wallis and Aquino. In the second cause of action, Plaintiffs allege that the four individual Defendants breached their fiduciary duties in that Defendant Wallis mismanaged Meridian Group and all four Defendants used the company's money for personal expenditures. In the fourth cause of action, Plaintiffs allege that Defendants Wallis, Greenberg, Ryan, and Aquino converted funds that Plaintiffs had invested in the various businesses, by using the funds for Defendants' personal benefit.

Defendants Wallis and Greenberg moved to dismiss the first cause of action based upon the six year statute of limitations applicable to an action for breach of contract. See CPLR § 213. These Defendants moved to dismiss the second and fourth causes of action on the ground that they were barred by the three year statute of limitations applicable to an action to recover [*3]damages for an injury to property. See CPLR § 214(4). Defendants also moved to dismiss the breach of fiduciary duty claim on the ground that it failed to state a cause of action.

In opposition to the motion, Plaintiffs argued that their claims for waste and conversion were timely because they were subject to a six-year statute of limitations. Plaintiffs further argued that their claim for waste was timely because they had commenced a "new action" and were therefore entitled to a six month extension of the statute of limitations pursuant toCPLR § 205(a). Prior to commencing the present action, Plaintiffs had commenced an action in the federal court based upon Defendants' operation of Meridian Group, which was dismissed without prejudice pursuant to two separate stipulations of the parties. Neither Plaintiffs nor Defendants specifically discussed the issue of when the breach of fiduciary duty claims accrued for purposes of the statute of limitations.

In the Prior Decision, the Court held that claims for waste and conversion of company assets must be asserted derivatively but that there is no statute of limitations expressly applicable to a derivative suit on behalf of a limited liability company. The Court thus analyzed the nature of Plaintiffs' derivative claims and determined that the claims were most analogous to an action on behalf of a corporation for fraud, waste, or an accounting. In light of that determination, the Court applied the six year statute of limitations, which is applicable to an action on behalf of a corporation, to the waste and conversion claims. See CPLR § 213(7). The Court held that the claims accrued on the dates of the transactions allegedly resulting in waste or conversion of company assets. Although Plaintiffs had invested their funds with Defendants in 2001, Plaintiffs alleged that Defendants Wallis and Greenberg continued to serve as managers of Meridian Group until at least December 2002. Thus, the Complaint could be read as asserting claims for waste and conversion which accrued both before and after May 12, 2002 (the date which was six years prior to the filing of the complaint in the present action).

CPLR § 205(a) provides that, "If an action is timely commenced and is terminated in any manner other than by a voluntary discontinuance...the plaintiff...may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of the commencement of the prior action...." The federal action was dismissed as to Defendant Wallis on January 16, 2008 and was dismissed as to Defendant Greenberg on December 19, 2007. As the present action was commenced within six months after the termination of the federal action as to Wallis and Greenberg, all of Plaintiffs' claims for waste and conversion would be timely as to these Defendants, if Plaintiffs were entitled to the benefit of the new action extension.

The court held, however, that Plaintiffs were not entitled to the benefit of the six months extension because the stipulations of dismissal constituted "voluntary discontinuances," and the stipulations did not expressly reserve Plaintiffs' rights to commence a new action pursuant to CPLR § 205. Thus, the Court granted Defendants' motion to dismiss the waste and conversion claims as to acts committed on or before May 12, 2002 and otherwise denied Defendants' motion to dismiss those claims based upon the statute of limitations. The Court denied Defendants' motion to dismiss the breach of fiduciary duty claims on the grounds of timeliness and legal sufficiency.

C. The Parties' Positions

Plaintiffs now move, pursuant to CPLR §2221, for leave to reargue or renew Defendants' motion to dismiss based upon the statute of limitations, submitting that the Court [*4]misapprehended the stipulations of dismissal and overlooked relevant case law in ruling that Plaintiffs are not entitled to the benefit of the six month extension provided in CPLR § 205.

Defendants Wallis and Greenberg move for leave to reargue their motion to dismiss the second cause of action based upon the statute of limitations. Defendants reiterate their argument that the breach of fiduciary claim is governed by the three-year statute of limitations applicable to an action to recover damages for an injury to property.

RULING OF THE COURT

A. Motions for Leave to Reargue or Renew

CPLR § 2221(d) provides that "A motion for leave to reargue ... shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion." CPLR § 2221(e) provides that "A motion for leave to renew...shall be based upon new facts not offered on the prior motion that would change the prior determination or shall demonstrate that there has been a change in the law that would change the prior determination; and shall contain reasonable justification for the failure to present such facts on the prior motion."

It is well settled that a motion for reargument is addressed to the sound discretion of the Court, and may be granted upon a showing that the Court overlooked or misapprehended the relevant facts or misapplied any controlling principle of law. McGill v. Goldman, 261 AD2d 593, 594 (2d Dept. 1999). It is not designed, however, to provide an unsuccessful party with successive opportunities to reargue issues previously decided or to present arguments different from those originally presented. Id.; Pahl Equip. Corp. v. Kassis, 182 AD2d 22, 27

(1st Dept. 1992).

B. Plaintiffs are not Entitled to the Extension Provided in CPLR § 205(a)

With respect to the motion to reargue, Plaintiffs assert that the Court misapprehended the stipulations of dismissal and overlooked the decision of the Appellate Division in the case of In re Walter, 29 AD3d 598 (2d Dept. 2006), app. dism. 7 NY3d 844 (2006). In Walter, the respondent had moved to dismiss the petition as time-barred. The petitioner argued that the proceeding was timely pursuant to the tolling provisions of CPLR § 205(a) because it was commenced less than six months after the discontinuance without prejudice of a timely prior federal action arising from the same series of transactions and occurrences. Id. at 599.

The Second Department reversed the decision of the Surrogate Court, which had granted respondent's motion to dismiss the petition against him as time-barred based on its conclusion that CPLR § 205(a) did not apply. Id. In so ruling, the Appellate Division held that "At the time of the discontinuance of the prior federal action, the parties sufficiently expressed their intent that the discontinuance was not on the merits, that it was without prejudice, and that consequently, the commencement of a new action within six months pursuant to CPLR § 205(a) was permitted." Id. Thus, the key to establishing a toll under CPLR § 205 is that the parties "sufficiently expressed their intent" that the prior action was not discontinued on the merits.

Walter reiterates the principles first expressed in George v. Mt. Sinai Hospital, 47 NY2d 170, 180 (1979). There, the Court of Appeals held that "where the prior action has been terminated by means of a voluntary discontinuance pursuant to a stipulation which contains no express statement of contrary intent, [CPLR § 205(a)] simply does not authorize a subsequent action, regardless of the actual motives of the parties." The Court of Appeals in George, however, granted plaintiff a six month extension of the statute of limitations pursuant to CPLR § 205 because the voluntary discontinuance specifically stated that it was "without prejudice to [*5]plaintiff's right to commence any action pursuant to the authority of Section 205 of the CPLR." Id.

The Court is mindful that, although the stipulation in the Walter case apparently did not contain language expressly demonstrating the parties' intent that CPLR § 205(a) apply, the Second Department nonetheless afforded plaintiff the CPLR § 205(a) extension. This case is, however, entirely different from Walter. Of course, at the outset, it appear that George requires the stipulation of discontinuance to expressly reserve plaintiff's right to commence a new action to entitle plaintiff to the benefits of CPLR § 205(a). But even adopting a more liberal view, the tolling provisions of CPLR § 205 do not apply here. Indeed, there is no document or other contemporaneous writing expressing the parties' understanding that the dismissal of the federal action was without prejudice to the plaintiff's ability to pursue a new state court action. The dearth of such evidence is not unsurprising; even with the tolling of CPLR § 205, the claims that plaintiff now seeks to assert may well have been time-barred in any event, and apparently were not fully pleaded (if pleaded at all) in the federal complaint.

In support of their motion to renew, Plaintiffs submit a letter dated July 16, 2007 that their counsel sent to the United States Magistrate in the wake of Judge Spatt's decision dismissing their RICO claims as to four of the Defendants, including Wallis and Greenberg. In the letter, counsel for Plaintiffs requested an extension of the discovery deadline, pending a motion to dismiss the RICO claims by the remaining Defendants. Plaintiffs also submit a subsequent letter from counsel for Defendants Wallis and Greenberg, noting that the remaining Defendants had not moved to dismiss the RICO claims as of the date of his letter. In the letter, counsel stated that he did not want to be precluded from conducting depositions as to the "state court claims...while this case remains in this court." Plaintiffs also submit another letter from counsel for Defendants Wallis and Greenberg, requesting that the original draft of the stipulation be revised, to reflect that the RICO claims were dismissed with prejudice. In the letter, counsel requests that the dismissal with prejudice of the RICO claims be made express, "so that state court claims can proceed in state court."

Plaintiffs offer these additional documents as evidence that Defendants acknowledged that the pendent claims would proceed in state court and that Plaintiffs would receive the benefit of a six month extension. However, George makes clear that plaintiff is not entitled to an extension of the statute of limitations unless the right to an extension is reserved in the stipulation, regardless of the actual motives of the parties. Moreover, acknowledging that the action is to be recommenced in state court is not tantamount to conceding that plaintiff is entitled to an extension of the statute of limitations. Since the newly submitted documents would not change the prior determination, the court need not decide whether they should have been submitted on the prior motion. Accordingly, upon consideration of Plaintiffs' motion for leave to renew Defendants' motion to dismiss based on the statute of limitations, the Court declines to modify its prior ruling.

Finally, Plaintiffs argue that the Court should interpret the federal court stipulations as having been executed pursuant to Fed. R. Civ. P. 41(a)(2), rather than 41(a)(1), even though the stipulations themselves simply state that they are executed "pursuant to Rule 41(a) of the Federal Rules of Civil Procedure." Fed. R. Civ. P. 41(a)(1) provides that "the plaintiff may dismiss an action without a court order by filing...a stipulation of dismissal signed by all parties who have appeared." Rule 41(a)(1) further provides that "unless the...stipulation states otherwise, the dismissal is without prejudice." Fed. R. Civ. P. 41(a)(2) provides that, "Except as provided in [*6]Rule 41(a)(1), an action may be dismissed at the plaintiff's request only by court order, on terms that the court considers proper." Rule 41(a)(2) similarly provides, "Unless the order states otherwise, a dismissal under this paragraph (2) is without prejudice."

While the dismissals as to Wallis and Greenberg were pursuant to stipulation, they were arguably issued pursuant to Rule 41(a)(2) because they were "so-ordered" by Judge Spatt and were apparently not signed by counsel for all parties who had appeared in the federal action. Nevertheless, for the purpose of the statute of limitations, the significance of the dismissals being pursuant to Rule 41(a)(2), as opposed to Rule 41(a)(1), is not readily apparent. In Kourkoumelis v Arnel, 238 AD2d 313 (2d Dept. 1997), the Appellate Division noted that the dismissal of the prior federal action was pursuant to Rule 41(a)(1) and ruled that the dismissal constituted a voluntary discontinuance for purposes of the six months extension. However, the court did not imply that the dismissal would not have constituted a voluntary discontinuance if the dismissal had been pursuant to Rule 41(a)(2). Indeed, since Rule 41(a) is entitled "Voluntary Dismissal," a dismissal by plaintiff by stipulation pursuant to Rule 41(a)(1) or by court order pursuant to Rule 41(a)(2) should be equally voluntary for purposes of the statute of limitations.

The primary significance of a Rule 41(a) voluntary dismissal being "without prejudice" is that plaintiff is not barred from recommencing a timely action upon the same claim in the same court. Semtek Int'l v. Lockeed Martin Corp., 531 U.S. 497, 505-06 (2001). Where plaintiff recommences the action in state court, state rules of claim preclusion control, as does the state's statute of limitations. Id. A Rule 41(a) voluntary dismissal does not require, as a matter of federal law, that plaintiff receive an extension of the statute of limitations, or the action otherwise be deemed timely, when the case is recommenced in state court. Id. Accordingly, Plaintiffs have not established that the Court misapprehended the federal court stipulations of dismissal or Fed. R. Civ. P. 41.

In sum, under the circumstances, the Court concludes that Plaintiffs have not demonstrated that the Court overlooked or misapprehended any matter of fact or law in deciding the prior motion. Thus, upon consideration of Plaintiffs' motion for leave to reargue that portion of the Prior Decision that granted Defendants' motion to dismiss Plaintiffs' waste and conversion claims in the first and fourth counts of the Complaint as to acts committed on or before May 12, 2002, the Court declines to alter its prior ruling.

B. The Court Dismisses Fiduciary Duty Claims for Acts Prior to May 12, 2002

Defendants Wallis and Greenberg move for leave to reargue their motion to dismiss the second cause of action based upon the statute of limitations. Defendants reiterate their argument that the breach of fiduciary claim is governed by the three-year statute of limitations applicable to an action to recover damages for an injury to property. See CPLR § 214(4).

A cause of action for breach of fiduciary duty is governed by a six-year statute of limitations where the relief sought is equitable in nature, see CPLR § 213(1), or by a three-year statute of limitations where the only relief sought is money damages, Weiss v. TD Waterhouse, 45 AD3d 763 (2d Dept. 2007). The relief that Plaintiffs request as to the second cause of action is an accounting, in addition to compensatory and punitive damages. As the remedy of an accounting is equitable in nature, the six-year statute of limitations applies to Plaintiffs' breach of fiduciary duty claim. Gottlieb v. Northriver Trading Co., 58 AD3d 550 (1st Dept 2009).Generally, a cause of action for breach of fiduciary duty accrues at the time of the breach. Kaufman v. Cohen, 307 AD2d 113, 121 n. 3 (1st Dept 2003). Plaintiffs allege that Defendants Wallis and Greenberg continued to serve as managers of Meridian Group through at least [*7]December 2002 and that both Defendants continued to waste company assets during that time. Thus, the Complaint may be read as alleging breaches of fiduciary duty that occurred both before and after May 12, 2002, as was the case with respect to the waste and conversion claims.

In light of the fact that Defendants did not address when Plaintiffs' claim for breach of fiduciary duty accrued, they have not established that the Court overlooked or misapprehended their argument with respect to the timeliness of Plaintiffs' breach of fiduciary duty claims. Nevertheless, the court is vested with inherent power to vacate its own judgment for sufficient reason and in the interests of substantial justice. Boyd v. North Elba, 28 AD3d 929, 931 (3d Dept. 2006). Accordingly, the Court grants leave to reargue Defendants' motion to dismiss the second cause of action based upon the statute of limitations and upon that reargument, 1) grants Defendants' motion to dismiss the second cause of action as to breaches of fiduciary duty that occurred on or before May 12, 2002; and 2) otherwise declines to alter its prior ruling.

All matters not decided herein are hereby denied.

This shall constitute the decision and order of the court.

The Court reminds counsel of their required appearance before the Court for a Preliminary Conference on January 13, 2010 at 9:30 a.m.

ENTER

DATED: Mineola, NY

December 7, 2009

__________________________

HON. TIMOTHY S. DRISCOLL

J.S.C.